Reminders for Expats filing Brazilian Tax Returns (IRPF 2020)

The deadline for the Brazilian tax return (IRPF) has been extended from 30 April to 30 June.  Nevertheless, we recommend that you prepare your tax return as soon as possible and not leave it to the final week!  If you are filing for the first time in Brazil, we recommend that you seek the help of a professional.

We have selected some relevant questions for expats and long-term foreign residents.

Disclaimer:  We are providing guidance and personal opinions which should not be interpreted as formal tax advice.  We recommend that you consult your accountant or contact us if you would like to be referred to a suitable accountant, based on your needs. 

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Which individuals are required to file IRPF?

Residency status applies to expatriates who have recently entered Brazil with a work/residency visa or foreign nationals who have stayed for more than 183 days in a 12-month period.  

• Residents of Brazil with taxable income above R$28.123 in 2019.   Includes rent, salary and other income categories – but excludes dividends.
• Residents of Brazil with exempt income, non-taxable income or income taxed-at-source above R$40.000 in 2019.
• Anyone who realised a capital gain and/or has traded shares on the stock market (Bovespa).
• Anyone who sold a property whereby the capital gain was exempt due to acquiring another property within 180 days.  This still needs to be declared regardless of the exemption.
• Owners of assets above R$300.000.

The IRPF software can be downloaded at the Receita Federal website.

What information needs to be included in my IRPF?

The tax return has two sections; income and assets which apply to Brazil and overseas. 

• Income (rendimentos):  Include all taxable income e.g salary and rental income and non-taxable income e.g. company dividends. 
• Assets (declaração de bens e direitos):  Include all properties, bank accounts, investments and other assets e.g. a car.  

What’s the difference between a simplified and complete return?

You have the option to choose either a simplificada or completa declaration model.  A complete declaration allows you to partially offset your taxable income with expenses such as medical costs, private school fees and private pension contributions (previdência privada).  Each category has a percentage or nominal limit to reduce your taxable income.  The software allows you to test both models and decide which is more favourable.  

 For example, a private pension may be used to offset up to 12% of your taxable income. If your taxable income was R$100K,  you could have contributed R$12K (by 31-12-2019) and be taxed on R$88K.  More information here in point 3.

How do I declare assets?

The asset statement should include the following items in Brazil and overseas.  *Please note, this is not an exhaustive list*.

Property (residential, commercial) and land; bank accounts, treasury (tesouro nacional) and CDBs;  investment funds and private pensions;  any assets valued over R$5.000 (e.g. crypto or a small plot of land).

Investment funds in a portfolio should be listed separately with their CNPJs – not in a single line e.g. ‘Trading account X’.    Investment funds, fixed income, shares and other financial assets all have different asset codes.

When declaring overseas investments, ensure you select the correct country and asset codes.  For example,  a bank account (Conta Corrente: 62) in the UK (Reino Unido: 628).  Remember to include overseas property and former employment pensions (e.g. 401Ks for US nationals) , which are often omitted unintentionally.

In 2018, Brazil joined the Common Reporting Standard (CRS), an international agreement to automatically exchange information with 100+ countries.  Hence, undeclared overseas assets are more likely to be cross-referenced and flagged.

Currency variation (variação cambial) tends to generates some confusion.  If the source of an international investment was BRL, and the investment is in say, EUR, then this item would need to be adjusted for market value and currency variation, based on the official Central Bank exchange rate on 31 Dec 2019.   If no chargeable event has occurred, then no gains tax would be payable on the investment growth or the currency variation.  If a partial or full withdrawal is taken from the investment, gains tax (15%) will be applied to the joint increase of investment growth and currency variation.

Note, the Central Bank return (DCBE) is a separate declaration.  Due to lockdown, the DCBE deadline has been extended from 5 April to 1 June.  This is a mandatory declaration for individuals with assets above USD 100K in value (or currency equivalent) at 31 Dec 2019.  These include financial instruments, cash in foreign currencies, real estate, shares etc. The DCBE data is used to measure the degree of ‘internationalization’ of the Brazilian economy.   More information here at the Banco Central website.

How do I declare overseas income?

Overseas income, rent and dividends are subject to Brazilian tax via a Carnê–Leão (DARF) payment on a subsequent-monthly basis.  Hence, if you receive rent from an overseas property or an income payment as a pessoa física on 15 April, the tax payment deadline is 31 May.   The tax rate (alíquota) is based on the progressive table for monthly income (tabela progressiva):

Brazil has several agreements in place with other countries to prevent double-taxation.  In any case, reporting requirements still exist in Brazil for the receipt of overseas income even if such receipts will be taxed overseas or are taxed at source.

There are several ways in which you can reduce or defer taxation on overseas income by changing your holding and/or operating structures.

How and when should I pay capital gains tax in Brazil?

For overseas assets (property and investments),  capital gains tax is payable at a rate of 15% on the amount of the gain. As per overseas income, it is payable on a subsequent-monthly basis.

I am a director of an offshore company; how should this be declared?

Shareholdings in trading and holding companies can be declared in almost a similar way as a local company.  Provide details of the company in the description (discriminação) with the number of shares and value of capital social at the time of inception.  Ensure you enter the correct country code and note that some smaller countries (offshore financial centres – OFCs) are not available in the drop-down menu.

Dividends from offshore companies are subject to Brazilian income tax at 27,5%.   Double-taxation agreements generally apply and will become more important as some OFCs are starting to introduce or increase company taxation for non-resident directors.

I left Brazil earlier this year and I’m not planning to return for the foreseeable future.  

You would need to file a Comunicação de Saída Definitiva  (permanent departure) to inform Receita Federal of your non-resident status and be exempt from paying tax on overseas income.  You would still be liable for tax on Brazil-source income and asset transactions.  You need to inform all of your financial institutions of your non-resident status for them to deduct tax at source at the non-resident rate.

Problems arise when people file the Comunicação de Saída Definitiva – yet fail to inform their bank manager or broker – which means the financial institution shares information (interest, earnings, gains) with Receita as if the individual were still tax resident.  This could lead to their CPF being suspended.

I received an inheritance from a family member, based overseas, in 2019.  Is any tax payable in Brazil?

In Brazil, death and donations taxes are imposed at state level.  ITCMD (Imposto sobre a Transmissão Causa Mortis e Doação) in the state of Rio de Janeiro (RJ) is set at 4% for amounts between R$39.993 and R$248.850.  This tax rate (alíquota) increases on a tiered scale (4.5% – 5% – 6% – 7%) with an upper limit of 8% on amounts above R$1.422.000.   There is significant ambiguity concerning Brazilian taxation on overseas inheritances which have already suffered estate taxes in the individual’s country of domicile.  We recommend taking professional advice which covers Brazil and your country of domicile.

For specific queries on expat taxation or financial planning, please contact us here.

Read our Coronavirus article about decision-making in times of uncertainty.

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